The Taiwan Banker

The Financial Supervisory Commission (FSC) has liberalized the establishment of digital insurance companies, aiming to encourage industry players to become so-called “wolf huskies” that innovate in the marketplace and demonstrate their competitiveness. Since 2016, fintech and digital transformation has swept across the world, prompting regulators to adjust their policies to promote the growth of digital financial services. At the end of 2024, the FSC announced the opening of the market to digital insurance companies to accelerate digitalization of the insurance sector. FSC Chair Dr. Jin-Lung Peng noted that future digital insurers must embody “the wolf spirit of huskies” – meaning they must be both innovative and competitive in the marketplace. Previously, the FSC opened applications for virtual insurance companies, hoping that new market entrants would create a “catfish effect” – stimulating market activity through competition, thereby motivating existing players to boost efficiency and innovate with new products. However, due to certain market conditions and regulatory constraints at the time, no virtual insurers were successfully established. Consequently, the “sardines” in the market continued to operate in their traditional manner, without significant disruption. Now, by opening up the market to digital insurers, the FSC likely no longer expects the catfish to stir up the market themselves. Instead, they aim to attract “huskies,” meaning newcomers who not only bring innovative technology to the table, but also possess sufficient market competitiveness to make a drive tangible changes in the traditional insurance industry. To understand the full implications of this policy, we should first examine the definition of digital insurers, the policy background, potential challenges, and market opportunities, and then consider where these new entrants may come from and how they could reshape Taiwan’s insurance market. A digital insurer operates entirely on a digital platform, encompassing product design, sales, underwriting, claims processing, and customer service. Rather than establishing a physical presence, these companies generally operate via the internet, apps, or AI, aiming to improve operational efficiency, reduce costs, and deliver a more personalized experience. On December 26, 2024, the FSC announced six major policy directives for the establishment of digital insurers: 1. Relaxation of the restrictions on their scope and operations: Digital insurers can now sell policies through a variety of channels, including sales staff, agents, or brokers. 2. Innovation protection mechanisms: A six-month innovation protection period for new products developed by digital insurance companies, extendable if necessary. 3. Lowering minimum paid-in capital: Property insurance companies now require a minimum of NTD 500 million, while life insurance companies need NTD 1 billion, making new entry easier. 4. Relaxed founder conditions: The previous restrictions on shareholding ratio between founders and shareholders have been removed, encouraging the involvement of diverse entities. 5. Opening up foreign insurance company branches: Attracting foreign firms with successful business models to enter the Taiwanese market, thereby increasing the innovative capacity and talent pool of digital insurers. 6. Removing deadlines for establishment applications: Providing ample time for industry players to prepare and submit feasible business models. These policies are designed to lower entry barriers, encourage innovation, and promote the digitalization of the industry. This is a significant shift compared to the previous push for virtual insurers. Taiwan’s high insurance market penetration rate means that, even in a market already saturated with property and life insurance, digital insurers have the opportunity to develop innovative products targeting emerging markets, such as young adults, fragmented insurance, and real-time insurance. Examples include: Information-driven health insurance: By monitoring health behaviors through wearables (e.g. Apple Watch), insurers can offer dynamic discounts based on personal health data. Short-term and situational insurance: Products such as professional liability insurance for gig economy workers, short-term travel insurance, and pet insurance. Fragmented insurance and youth market: Digital transformation reduces operating costs, making fragmented insurance viable and appealing to younger demographics. The FSC's reduced capital thresholds and innovation protection mechanisms provide significant incentives for start-ups and technology firms. The relaxation of requirements for founders to include non-financial institutions is particularly encouraging, as it attracts more innovative teams. However, digital insurers still face several challenges: Capital threshold and risk appetite: Despite the reduction in capital requirements (NTD 500 million for property insurers and NTD 1 billion for life insurers), these figures remain a significant hurdle for start-ups. Consumer trust and brand building: Gaining market trust and establishing brand loyalty will be crucial for new digital insurers. Competition with traditional insurers: Traditional insurers are quickly adapting to digital trends, placing pressure on new digital players. Finally, applicants must be entrepreneurial and understand that the insurance industry has a long payback period – often up to seven years.Potential applicants may include: Large hospital chains or pharmaceutical groups: Healthcare providers are trusted by consumers and have access to potential policyholders. If they launched a digital insurance company focused on health insurance, they could leverage electronic medical records and health management services to offer precision solutions, creating a niche in telemedicine and personalized insurance. Technology-driven insurance brokers: By utilizing big data and AI, tech companies can partner with major insurance brokers to offer customized insurance solutions, thus establishing a business model based on their service diversification. International digital insurers: Companies like Lemonade (U.S.), Ping An Good Doctor (China), and SOMPO Digital Lab (Japan) could bring strong competition and innovation if they choose to enter Taiwan. Existing financial holding companies without insurance arms could seize this opportunity to establish sub-brands or develop new insurance models. The establishment of digital insurance companies will benefit Taiwan's insurance market in several ways. First, it will accelerate digital transformation, prompting traditional insurers to adopt technologies like AI, blockchain, and big data to enhance their operational efficiency and customer experience. Second, increased competition will lead to service optimization, resulting in more flexible and personalized options, such as premium adjustments driven by health data, instant enrollment, and short-term policies. Additionally, policy relaxations could attract domestic and international tech companies, medical institutions, and even the manufacturing sector to enter the insurance market, thus expanding the insurance ecosystem and increasing market penetration. This will allow more diverse populations to be covered, including low-income groups and younger generations, leading to greater inclusion. While digital insurance may also have some negative effects – such as a potential reduction in roles for traditional salespeople and brokers – it will also accelerate the elimination of weaker players and the retention of stronger ones. Increased competition could lead to short-term price fluctuations and make the market more volatile. However, once profitability is established, regulators can strengthen market order and self-regulation. Furthermore, privacy concerns and cybersecurity risks must be carefully managed to ensure personal data protection and prevent algorithmic bias. For regulators, it will be essential to manage this new digital insurance model effectively to prevent moral hazard and market instability. Huskies represent speed, and as they enter the market, all stakeholders will be compelled to act. Regulators, insurers, and consumers will begin their digital transformation journey. Establishing digital insurers is not just about liberalization, but also about ensuring the future sustainability of the insurance industry. As Taiwan faces the challenges of aging and a shrinking youth population, the traditional insurance sales model will likely struggle to maintain momentum without sufficient physical channels. The industry must find ways to serve customers more efficiently and at lower cost, thereby expanding the social safety net. Whether they serve as coaches, leaders, or companions in the digital transformation race, new, approachable, and engaging insurance providers are coming. The author is a Professor, Department of Financial Engineering and Actuarial Mathematics, Soochow University, and President of the Insurance Business Development Center